An exit strategy is an important tool in the world of business and trading, outlining exactly how and when to get out of an investment. While it can be difficult to recognize that you might want to back out of a particular venture, the truth is, there may often come a time when it makes sense to cut your loss and move on. Planning how and when to get out is crucial to any venture and leaves little room for potential losses or regrets down the road.

Business Exit Strategies

The most common business exit strategy is an initial public offering (IPO). An IPO allows a privately owned company to attract outside investors by selling a portion of its stock to the public. This can offer a great return on money invested, but also carries risk and significant costs. Going public affects the balance of power in the company and the responsibilities of the original founders.

Alternatively, private companies may opt for an acquisition or buy-out as an exit strategy. This sort of transaction allows a company to partner with a larger company in order to build market strength and acquire resources, while still maintaining its own corporate identity. This strategy is good for companies that do not want to take on the risks associated with an IPO but still want to grow.

For those desperate and unfortunate circumstances where a company needs to exit in a hurry, the options include strategic default or bankruptcy. This is typically the last resort to wind down a business, and all other exit strategies should be explored first.

Trading Exit Strategies

The most common trading exit strategy is putting a stop-loss order in place in order to prevent downside losses. This order is a predetermined price at which your trade will be automatically closed out in order to prevent any further losses beyond that amount. Setting a stop-loss removes the emotion from the trading equation, thereby safeguarding your account from any catastrophic losses.

Another exit strategy for trading is to establish a take-profit order, which allows you to get out of a winning trade. This order allows you to take your profit off the table as soon as you reach a certain level. It also affords you the opportunity to lock in profits if the trend begins to reverse.

Conclusion

Whether you own a business, invest in stocks and commodities, or both, having an exit strategy in place is essential. Not only will it help to protect your investments, but it will give you the peace of mind that you have a plan in place and a way out, should the situation or conditions call for it. Having a good exit strategy will go a long way toward setting you up for a profitable and satisfying venture.